Insolvencies across the board are on the rise, including in fashion. Christopher Kelly speaks with insolvency firm Jirsch Sutherland to learn how business leaders can navigate the fall.
Retail trade is the fourth highest sector when it comes to insolvencies. This is according to the Australian Securities and Investments Commission (ASIC) in a report that shows overall insolvency appointments recently peaked at 1,400 in March 2024. This is up from 1,276 in February, and 799 in January.
Interestingly, insolvencies in January are generally quiet compared to the rest of the year, but January 2024 is a lift of 61.7 per cent on January 2023.
The same report also shows that retail-specific insolvency appointments have steadily risen since 2022, with year-to-date appointments to March 2024 hitting 629, up by 368 from March 2022 year-to-date.
This all comes following the collapse of fashion brands in recent months, including Tigerlily, Nique, and Colette by Colette Hayman parent company Marquee Retail Group. Tigerlily has since been saved by swimwear brand Seafolly in a deed of company arrangement.
Other Australian fashion businesses that fell into administration in the last year were Nique, Sol Sana parent company Kinzu Brands, and Alice McCall in early 2023.
“Retailers, like all businesses, are susceptible to a multitude of events that can impact their financial performance,” Jirsch Sutherland partner Andrew Spring reveals. “Some are outside of their control, such as declining consumer sentiment due the rising cost of living; whereas others are strategic, such as product mix choices or staffing levels.
“In my experience, these issues are all attacking one target: margin. And the main reason that I see for retailers entering external administration is an inability to maintain margin.
“By being ruthless in protecting margin, the business will give itself the best chance of long term success.”
Jirsch Sutherland has restructured retailers across numerous goods and service offerings following administrative appointments. Spring says there are three key questions he asks no matter the business model:
- Do we know what has gone wrong and what has caused the damage?
- Can the problem/s be corrected; if it is corrected is the business fundamentally viable?
- Can we produce a better outcome for all stakeholders via the business continuing to trade?
Spring says if the answer to each of these questions is yes, then a restructure is worth exploring further.
“If a business requires a formal insolvency appointment, then a voluntary administration has historically been the best method of restructuring the business - either financially or operationally,” he says.
“Any financial restructure requires careful consideration of a range of factors that extend beyond the financial position, but when applied appropriately there is a high level of success.”
The Alice McCall business, for instance, had all its tangible assets sold off, but the founder Alice McCall had retained ownership of the brand name and its intellectual property. This allowed her to sign a watershed deal with Shein late last year.
Meanwhile, Kinzu Brands is still under external examination according to ASIC, with Sol Sana still selling on its website as of writing.
Nique’s administration appointment is still ongoing at time of writing, with documents showing it had faced net losses since FY2016, hitting a peak of $2.5 million in the 2019 financial year, which eventually culminated in the brand’s collapse. The company’s estimated total liabilities were at $9.04 million - including non-current liabilities.
Following the insolvency appointments for Tigerlily and Marquee Retail Group, Spring says this may just be the beginning for fashion business insolvencies this year.
“The level of enquiry has increased across all industries, but interestingly I have heard from a few fashion retailers that sales in Q1 2024 have been very slow,” Spring says. “If that anecdotal evidence is reliable then it is likely that we will see continued increases in fashion retail insolvencies in the short to medium term.
“It is important for any business that finds itself in this situation to seek help early as there are a number of options available to explore.”
For fashion retailers in particular, Spring said the market faces the unique challenge of navigating ever-evolving trends that are difficult to predict and even harder to successfully commercialise.
“Go too hard at one, and you are left with unsold obsolete stock. Go too lightly on another, and you miss an opportunity to reap the rewards.
“Fashion retailers seem to encounter problems when they lose touch with their brands target audience.”
Spring adds that with the rise of online retailing, there seems to be a fear of being left behind for many businesses.
“And certainly, having an active online presence that is fit for purpose can only strengthen most. However, getting this wrong can perhaps be likened to opening a perfume store next to a waste disposal centre.
“Like everything in business it is most often the execution, not the idea, that will create value.”